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New VAT Bill presented in Parliament

03 July 2013, 12:00

Nairobi- A proposed tax that would raise the price of food and other basic items was presented in Parliament on Tuesday, even as civil servants demanded higher pay to cope with rising living costs.

The unpopular measure is a tough sell for President Uhuru Kenyatta, who came to office in April saying he would rein in the budget deficit and appealing for wage restraint.

Finance Minister Henry Rotich said in his budget speech last month that he would re-introduce value-added tax on goods including medicines and the staples rice, milk, bread and wheat.

Most luxury goods are already charged VAT, as well as goods like alcohol and cigarettes, and mobile phone airtime.

Rotich said the plan to widen the tax does not target the poor, but consumer groups say it will fan inflation now at 5 percent.

Dozens of protesters led by a consumer group, Consumers Federation of Kenya (Cofek), marched in the capital Nairobi on Tuesday demanding the government scrap the plans.

"People are simply not going to afford goods. This is also going to fuel inflation, interfere with production by adding costs and eventually reduce jobs," said Stephen Mutoro, secretary general of Cofek.

The government is trying to raise cash to develop the poor country blighted with a 40 percent jobless rate without adding to a budget deficit of around 330 billion shillings ($3.85 billion).

A similar VAT bill was thrown out by parliament last year and proponents of the new one are unlikely to face an easy ride. The government has a majority in parliament but the bill may well fail.

A survey by pollster Ipsos Synovate last month showed 86 percent of 1,543 respondents were against the VAT move.

The government is struggling to fend off demands for higher public sector wages and a strike by thousands of primary school teachers is now in its second week.

The teachers want higher housing, medical and transport allowances they say they were promised in 1997 and are staying away from classrooms in defiance of a court order to resume duty and negotiate a new deal.

Other civil servants including the police are also clamouring for higher pay. ($1 = 85.7500 Kenyan shillings)

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- Reuters

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